Question: 5. Consider an economy with two commodities (x, m) and two consumers, 1, 2. Each consumer i's consumption is given as (xi,mi) R+ x

5. Consider an economy with two commodities ( (x, m) ) and two consumers, 1,2 . Each consumer ( i ) s consumption is giv 

5. Consider an economy with two commodities (x, m) and two consumers, 1, 2. Each consumer i's consumption is given as (xi,mi) R+ x R. Each consumer's preferences can be represented by the utility function: ui (xi, mi) = 2 + m. The price of commodity 2 is given as p, and commodity m is numeraire. Assume that the endowments of the two consumers are given by: W = (2,0), W = (0,2). (a) Obtain algebraically the set of Pareto-efficient allocations. (b) Draw the curve for the set of its utility possibility frontier. (c) Obtain the aggregate excess demand function of commodity x as a function of p. (d) Obtain the competitive equilibrium price, and the competitive equilibrium allocation.

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SOLUTION a ParetoEfficient Allocations A Paretoefficient allocation is one in which no consumer can be made better off without making the other consumer worse off We can find Paretoefficient allocatio... View full answer

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